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Unformatted text preview: ugba 1O
.74 .556 70 Principles of Business OF BUSINESS April 2003 Module 4 Exam: Accounting and Finance
David Robinson Instructions Make sure your family
name comes ﬁrst! This is an exam—please do not talk
Your books and notes must be put completely .. if you are without eith me your hand ‘
While you are waiting to /e-- . 'n, enter the following on your Scantron: Name: LAST, First M.
Sunken 1234—5678 your Student Identification Number
TestN0.: {A, B, C, or D} This is the test version-you won’t know this until you open the test
Date:_ ' (1, 2, etc) This module number Hour: . Your Section number: (101 116) WW 1 ugba-10 Module 4 Acct & Fin 1. An advantage of the proprietorship form of business is that it is
relatively easy to set up but a disadvantage is that you could be
found liable for: ' X Your employee’s personal debts
b. Mistakes your employees make \/
c. Debts incurred by your business \/ o A and C are correct
3 B and C are correct
2. According to the text, the US Supreme Court has determined that
Corporations can be considered as a “legal person” and so they can: a. Buy and hold property in the name of the corporation\/
b. Commit crimes and be punished for them c. Sue other corporations and can be sued @ All of the above My 3. Contribution is defined as the difference between per—unit selling price and variable cost. Speciﬁcally, where does contribution go?
(Or to put this another way, “Contribution to what?”)
a. Profit 7.
b. Fixed costs\/ ,c.’ Opportunity cost (a) A and B are correct "'6. A and C are correct 4. The Securities and Exchange Commission (SEC) exists to protect
members of the public who buy shares. The SEC does all except
which one of the following? a. Requires ﬁrms to issue a prospectus describing what they
/ plan to do with shareholders money
b. Enforces the “Insider Trading” laws V/ @ Assigns the ticker symbols such as SBUX and GPS to almanac“ .
common stocks )Q ‘ (:1. Offers rewards to people who turn in suspected insider
traders 5. Which one of the following entities can borrow money from the
j§eral Reserve?
. You ,Ib./ Starbucks Corporation
c. The State of California
@ The Federal Government (Treasury Department) ugba-1O Module 4 Acct & Fin 2 “—3)“ 6. Pension Funds and Insurance Companies are considered non- bank lenders (or “non-deposit institutions [text]). According to
lecture, they are likely to loan money for:
a. Small, short-term projects
(1% Small, long-term projects 2‘ ?
G; Large, long-term projects
d. None of the above 7. Until recent reforms passed by Congress (the Sarbanes-Oxley Act)
who determined the rules for applyinggenerally”Accepted
Accounting Principles(GAAP)?y I, 7‘ The stock exchanges w The accountant’s national association, AICPA
c. The Federal court system
d. The Congressional Budget Office 8. Which term matches this definition? “An economic resource that
can be expected to benefit a firm.” Asset
. Liability c. Equity
d. Retained earnings
‘ 9. “Gross Profit” does not take into account a firm’s: 2‘; a. Cost of Goods Sold '(COGS) \/ b. Operating expenses \/
c. Revenue \/
Gross Sales 10. Financial accounting matches expenses with the period in which a
sale was made. This is different from the type of accounting you
use which is: ' Cash basis accounting 0“;an \
Deferral accounting c. Depreciation accounting d. Checking accounting 1 1. If your grandma give a lump-sum of money to an insurance
company and receives a monthly payment for the rest of her life,
she has bought a:'
a. Debenture
@ Annuity \/
c. Mortgage
d. None of the above 3 ugba-1O Module 4 Acct & Fin 12. Auditing under SEC rules is not likely to catch which one of the
fo owing?
(a A “concerted scheme” involving collusion between several top
V managers
b. A loan bookkeepr writing checks to himself or herself from
company funds
- c. A company that is misapplying Euro ean accounting rules to
its American subsidiary company
d. A company that doesn’t have good systems for bookkeeping
so that the work is sloppy and the financial statements are
inaccurat 13. Which is the correct form of the “fundamental accounting equation”? K A‘LE‘?
a. Income — Expenses = Revenue
b. Income + Revenue = Expenses xcf' Assets + Liabilities = Equity
Assets = Liabilities + Equity 14. On the Balance Sheet, which asset does not depreciate very year
and is always shown at its original purchase price? a. Buildings, such as warehouses (E? Land that the firm owns
c.’ Equipment such as cappuccino machines
d. Office equipment such as copy machines, 15. If a firm goes bankrupt and ceases to operate, the purpose of the
bankruptcy laws is to make sure that there is an “orderly
disposition” of a firm’s assets. Which of the following best describes
who gets what? ,a/ Shareholders get back what they paid in, bondholders get
nothing.
b. Shareholders get the amount of s“hareholders’ equity” per
share, and trade creditors get what they are owed. @ Bondholders get paid first, then trade creditors (often a
proportion of what they are owed) and shareholders often get
nothing. \/ ,d./ Shareholders are paid ﬁrst, and trade creditors are likely to
get nothing. ugba-10 Module 4 Acct & Fin 4 16. On the Statement of Cash Flows, why do we begin by adding back the expense shown for Depreciation?
Because Depreciation is like taxes, it’s paid to the
government , . Because government grants pay for Depreciation c: Because it is a non-cash expense: Although it’s shown as a
deduction against Revenue, no cash changes hands. ,6 Because a firm writes a check for Depreciation, it doesn’t spend cash. 17. The Statement of Cash Flows considers cash obtained from and
used in three areas of business operatlons Wh1ch of the following
is not a major sub- head1ng 1n the Statement of Cash Flows? a. Financing .
b. InvestingV/ »
c. Operations VT Profits 18. Financial analysts typically use ratios to compare a firm’ s
performance. They compare information from the period under
study (such as the most recent quarter) With: (a? Government standards, bank statements
@ This firm 1n previous periods, similar firms \/
'c. Similar firms, government standardsK' M A? Bank statements, survey results 19. What type of investment almost never exists? a. Low risk, low return LM3.,L X W
b. High risk, high return ‘1 NI ,1» 63 Low risk, high return £33m ’ "K
d. Medium risk, medium return £13m: M“ 20. If you like the idea of working for yourself, which form of business
gives you the most control?
Partnership
b. Publicly traded corporation
@ Sole proprietorship
d Limited partnership in which you are a limited partner 21. 22. x..._§ 23. 5 ugba-10 Module 4 Acct & Fin Why is ’I‘yco, Inc. registered in Bermuda, when its headquarters is
in New Hampshire and most of its offices are in New York and
Florida?
/'=( It’s an excuse for senior executives to spend most of the year
at the beach
/,b./ The firm hopes to do more business in Bermuda in the , future
(5;? To avoid US Federal Income taxes \/
(:1. Because Bermuda courts are more likely to support incumbent management in any shareholder dispute WM ‘ One way to pay off a loan is in a lump—sum at the end of a period
of time, but most loans pay off a small part of the principal each
month. (If you have a car loan, it works like this.) The process of
paying off a loan’s principal gradually over time is called:
I/éf’ Depreciation ‘ b. Annuitization Amortization A perpetual annuity
Burton Malkiel is a Princeton economist famous for his argument‘
that stocks are a good investment over the long haul, but most
experts aren’t very good at picking individual stocks. For “retail
investors” (people like you and me, as opposed to pension funds
and other “institutions”) he recommends: a. Choosing a well-managed mutual fund, such as Fidelity
_, Magellan '
b. Investing in Index Funds
)2." Investing with the fund manager who beat the index last
year /d./ Buying a single stock and holding it for a long time p ugba-10 Module 4 Acct & Fin 6 24. Andy Kessler wrote a prescient article in 2000 in which he
sketched out several accounting tricks that firms had used to
boost their financial results. Over the next few months, not only
small, fast—growing firms ran into trouble, but many larger
companies such as Global Crossing and MCI WorldCom also fell
into bankruptcy when their accounting tricks were uncovered. The
tricks included all except which one of the following: a. Treating some Cost of Goods Sold as “marketing expenses” \/
b. Bartering services with other companies in “swaps” v
Q) Selling stock which didn’t exist and wasn’t registered with
the SEC '
d. Shifting revenues from one quarter to another. (/ 25. Which of the following is not a legal Fiscal Year ending date under
SEC rules? . ,. " ' ’ ‘
a. The company founder’s birthday V', .. ‘ i
b. December 31st Vk—na 1% as H“ ﬁwﬂt’ﬂﬁt
c. The last Saturday in Septemberv’
@ All of the above are permissible A 9%: 26. The US Federal Reserve bank is considered a model for the rest of
the world because it has proven to be:
Very successful at controlling inﬂation since its founding in 1776
Q @ Very successful at controlling inﬂation in the last two
2*” decades
ﬂ? Very successful at promoting the issuance of new common
stocks
d. Successful in avoiding the failure of any member banks 27. When your instructor selects textbooks, he refuses to consider
those with rags-to-riches stories of young entrepreneurs who have
started out a business by charging business equipment purchases
on their personal credit cards, because this action is: [M A long-term source of funds, used for short-term purposes /b‘:' A long-term source of funds, used for long—term purposes
A short-term source of funds, used for short term purposes ﬁg A short-term source of funds, used for long—term purposes 7 ugba—1O Module 4 Acct & Fin 28. What is true about Retained Earnings as a source of financing for a firm?
There’s usually more money than a fast— growing firm needs
They are an important source of low— cost capital for a
growing firm \/ / They cannot be used by the firm because they belong to the
shareholders (1. None of the above are true 29. What 1s the Future Value (FV) of $10, 000 at 10 percent two time periods from now? w
. 8264
:2: 10,000 17“? (H 0‘7 u ”of,
c. 12,000 _, I. ; '«e—eveeeee
. , - OD . .
12,100 ff 0 0( )21100 0 TWNWme 05313 “-9 30. The 1—year treasury bill does not pay “coupon interest”s SEN
{ /\;}/’ bought the bill directly from the US Treasury on its issu date, you33 , gm wguld expect to pay:
ﬂ? A01) Ewe @ Less than the face value of $10,000
e ’ . Exactly $10,000
“’9’ More than $10,000 31. In general, what it true about interest rates?
@ They are the lowest they have been in 44 years V
: Short term rates are very high, but mortgage rates are low
,e/ Treasury instruments are paying very high interest to
finance the war
(1 We are in an unusual time period when the interest rate on
checking accounts actually exceeds the 30—year bond yield “Mme-3% 32. Once a firm has covered its Fixed Costs, what 1s true?
(a(” Variable costs are zero 4‘) \g {Q‘W
Average cost = variable cost W 8%wa Er
‘ . Average cost = contribution Mme-WM \DM ‘5 ‘
(1. None of the above , ugba-1O Module 4 Acct & Fin 8 33. The photograph on the front cover of the ugba—10 reader is a sunk
cost under what circumstances: * A?” We paid the photographer a fee of $250 last year and
promised to pay him $1 for each book we print last year and
next year 13/ We decide to hire the same photographer as last year to take
the photograph, his fee will be $250 but he says we don’t /' . have to pay him until the books start selling in August We paid the photographer $250 last year and we own the ‘ copyright to the photo so we can use it again next year
,dr’ We paid the photographer $250 last year and we agreed to
j pay him $250 for each future year that we use the photo 34. This is version D; bubble in ~D— for this question and write “D” in
the identification section of your Scantron. If you do not answer
this question, you lose the pint. No
exceptions ...
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